France announced an ambitious reform that was to enter into force from 1 January 2023 but a couple of days ago it was postponed until July 2024.
Postponement confirms that the reform obviously represents a huge undertaking concerning various topics. Fidal actively participates with its elaboration and therefore can deliver an up-to-date overview.
There are four official objectives behind the French reform: combatting tax fraud, not limited to VAT but also including other taxes such as CIT, reducing companies’ administrative burden related to invoicing, making the automatic pre-filing of VAT returns possible and, finally, providing the French government with real-time information on economic activity so that it can efficiently target its economic actions. Other tax authorities are very interested.
As in different EU countries, compulsory e-invoicing exists today in France for B2G (Business to Government) transactions only. Under the reform, which only impacts transactions from invoices ruled by French tax invoicing rules, e-invoicing will cover any domestic B2B transactions. This represents around 4 billion invoices, issued by 2 million companies. Invoice transmission will no longer be directly from the supplier to its client. Invoices will have to go through an electronic platform, either public or private, but will recognise strict conditions. Besides that, the government plans to require additional compulsory information on invoices, e.g. the identification number of the client. Finally, the government already announced that issuing PDF invoices will still be accepted at the start but that, at a later stage, issuing invoices under a structured format will become compulsory. In this regard, it must be noted that the French Tax Authorities currently examine the “FacturX” format in depth.
However, e-invoicing alone would not suffice to meet the goals listed above and it will be backed with a consistent e-reporting system.
Such an obligation already exists in different countries and apparently reduced the annual VAT gap by 2 billion euros in Italy. The French e-reporting obligation at first will cover transactions not covered by e-invoicing, such as B2C transactions or transactions made with foreign companies. However, also for the transactions themselves which are covered by e-invoicing, companies will be obliged to e-report information that is not included on the invoice, like, for instance, the date of payment.
This reform obviously will mainly impact companies based in France, including subsidiaries of international groups whose mother company is based abroad. However, foreign entities themselves might be affected. As time speeds by, we clearly recommend that preparatory work is started now and that the obligations that companies will bear in the future are identified, that current IT systems are assessed to include the necessary data to cope with these obligations and to check how the current company’s invoicing partners will respond to the reform (will these act as qualified platforms?). This reform also provides the opportunity to pay attention to an already existing tax obligation; the reliable audit trail documentation. Indeed, the government made clear that this specific obligation would remain, despite the reform.
Beyond that, taking a look at French plans also gives an idea of what is in the pipeline in some other countries and what eventually could become reality at a European level, as the European authorities will logically require a unique regulation.
The Global VAT Newsletter focuses on changes in compliance duties in various EU and non-EU countries.
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